The Best (and Worst) Emerging Markets ETFs over the past 3 years

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Emerging market ETFs have become increasingly popular in recent years, as investors have embraced this corner of the market for its lucrative growth opportunities as well as its long-term potential. These markets consume large amounts of commodities, are developing a middle class, and are expanding their infrastructure faster than any developed nation before them. Many have turned in impressive gains over the past three years for investors who jumped in early. But these returns are by no means the standard; within this category there is a large gap between the best and worst performers [see also European Dividend ETFs Offer Big Yields].

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First, as always, the winners. These ETFs invested in the right industries and developing nations, which have blossomed over the last three years.

DWA Emerging Market Technical Leaders Portfolio (PIE)

This ETF has risen to the top of its category by focusing on 100 companies across the globe that possess powerful relative strength characteristics and are seen as influential in growing markets. Most of the companies are consumer cyclical, making up 25% of the portfolio, but there are also fair representations from the consumer defensive and basic materials sectors. Asian equities account for 50% of total assets, split between Malaysia, South Korea, Indonesia, and Thailand, but there are also a fair number of companies from Turkey, South Africa, and Brazil [see also 5 Emerging Market ETFs ex-Taiwan & South Korea].

The 3-year return for this ETF is a whooping 25%, and its current year-to-date return comes in at 12%. These amazing returns may be caused by this ETF’s strategy of investing in consumer sectors in growing middle class economies, which are notorious for spending money.

Emerging Markets Equity Income Fund (DEM)

This well diversified fund follows a fundamentally weighted index that measures the performance of the highest dividend yielding stocks in emerging markets. The largest country represented in the fund is Taiwan, which makes up 20% of the portfolio. There are other main holdings in China, Russia, Brazil, and South Africa. The financial sector makes up 25% of the portfolio, since this industry historically has some of the highest dividends, while energy, materials, and telecom sectors also receive meaningful weightings. [see also 3 High Yielding Telecom ETFs].

With a 25% 3-year return and a 10% YTD return, this fund has brought in amazing returns with its current income strategy. Dividend paying companies offer great exposure to emerging economies, while maintaining a sense of security as a long term holding.

S&P Emerging Markets Infrastructure Index Fund (EMIF)

EMIF focuses on the growth of infrastructure in growing economies, investing heavily in the industrials, utilities, and energy sectors. These industries tend to be dominated by large firms, which make up 80% of the ETF’s total assets, with medium firms accounting for the rest. Securities from Latin America make up almost half of this fund, with Brazilian stocks alone taking up a third of the portfolio. Chinese equities also make up a significant portion of total assets, but there are also important smaller holdings in Russia, Mexico, Chile, and the Czech Republic.

This narrow view of emerging economies has paid off, with returns of 23.5% over the last 3 years, and an amazing current YTD return of 18%. Governments and companies that want to expand their global reach have to improve the conditions of their own country first, so investing in infrastructure makes for a potentially lucrative opportunity [see also 8% Yield ETFdb Portfolio Now Available].

And now, the emerging market ETFs that didn’t get it right.

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Contrarian Picks

Dow Jones Emerging Markets Metals & Mining Titans Index Fund (EMT)

This ETF seeks to measure the performance of the largest publicly traded mining companies involved in industrial and precious metal exploration, extraction, and production in emerging markets. With mostly large cap holdings in South Africa, China, and Brazil plus a annual dividend yield of 4.2%, it might come as a surprise at first glance that this ETF has fallen so far.

Invested entirely in the basic materials sector, EMT not only has the highest expense ratio of the commodity producers equity ETFs at 0.85%, but it also has lost 21.7% over the last three years. This could have been caused by the relatively poor performance and unreliability of the mining sector, but also lack of diversification in this ETF [see also DEM Makes Its Case To Be Your Emerging Market ETF].

BRIC ETF (EEB)

This ETF follows an index of American and global depository receipts, selected based on liquidity, from companies in the BRIC nations; Brazil, Russia, India, and China. Most of these companies are either operating in energy, financial services, or the communications industry and are giant corporations within their home markets [see also European Dividend ETFs Offer Big Yields].

This fund has struggled to stay afloat, losing 10% over the last 3 years and 23% over the last five years. One of the main problems in BRIC nations investing is that these economies have grown significantly over the last ten years, and some of them soon might not even be considered emerging markets. These economies also felt the affects of the 2011 and 2008 downturns, with hammered equity prices around the globe significantly impacting these developing nations.

MSCI BRIC Index Fund (BKF)

BKF has also narrowed the lens of emerging markets down to just Brazil, Russia, India, and China, some of the largest and most well known growing economies. China and Brazil each take up a third of the fund’s total assets, the remainder is split between India and Russia. Most of the companies included are in financial services, energy and basic materials sectors, much like the previously mentioned EMT.

The winner of the losers, BKF only managed to lose 9% over the last 3 years, even after gaining 90% in 2009 when it outperformed all other funds in its sector. This fund’s recent poor returns may be caused by a combination of over saturation in these well known markets, along with the economic slowdown in China. All hope for this ETF might not be lost, as its YTD return is currently 10%, investors who think BKF could return to its former glory might want to take a closer look at it.

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Disclosure: No positions at time of writing.

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